* Premier Wen says no let-up in anti-inflation campaign
* China monetary tightening to continue-central banker
* PBOC will try to avoid big ups and downs in
* Economists expect further hikes in interest rates in H2
(Recats, adds comments)
By Kevin Yao and Yan Jiang
SHANGHAI/BEIJING, July 11 China's premier and
the country's central bank governor vowed on Monday to prevent
stubbornly high inflation from upending the economy, reinforcing
expectations for more increases in interest rates and bank
Premier Wen Jiabao said tackling inflation was the
government's top policy priority while central bank governor
Zhou Xiaochuan said the authority needed to make maintaining
price stability "more prominent and important".
Inflation rose to a three-year high of 6.4 percent in June,
data showed on Saturday. The comments mark a fresh attempt to
show the inflation fight is far from over and the government is
determined to bring prices back under control, analysts said.
"If they signal any comfort with inflation, and inflation is
as high as it is now, they could create an environment in which
people would panic, and they can have a real problem on their
hands," said Tim Condon, head of Asia research at ING in
Wen declared curbing price pressures as the top priority in
China's version of a "State of the Union" address in March, when
inflation was 1 percentage point lower than June's level.
The Communist Party is worried that rising prices could
spill over into public protest. Wen said in March that inflation
could threaten social stability in the world's second-biggest
"We must treat stabilising overall price levels as the top
priority of our macro-economic controls and keep the direction
of macro-economic adjustments unchanged," Wen said in remarks
reported on Monday by the central government's Internet portal.
He said the government would try to stabilise prices of
pork, a staple meat for Chinese and the most closely watched
item in controlling inflation, by boosting the supply of hogs.
Pork prices in June shot up 65 percent from a year earlier,
official figures show.
China would maintain a "prudent policy" to bring prices back
under control while trying to avoid causing big swings in
economic growth, Zhou said.
"The most prominent problem in macro-economic operations is
the relatively big inflationary pressure and still strong
inflationary expectations," Zhou wrote in the latest edition of
China Finance magazine, published by the People's Bank of China.
"We must make it more prominent and important to maintain
basic stability of the overall price level, and pay attention to
price stability in a wider scope," Zhou said.
China's inflation has largely been driven by rising food
costs, which rose 14.4 percent in the year through June.
June's headline inflation was slightly above the 6.3 percent
forecast in a Reuters poll and revived expectations of more
interest rate rises in the next few months.
The data, combined with weak jobs growth in the United
States and lower than expected imports in China in June, rattled
Asian stock and commodities markets.
GROWING DOWNSIDE RISKS?
Zhou also said that the central bank would work to "avoid
big fluctuations" in the economic growth, indicating some
concerns over risks to the economy.
"We should implement prudent monetary policy in a pro-active
and safe way to handle the relationship between maintaining
stable, relatively fast growth, adjusting economic structures
and managing inflationary expectations," he said.
China's import growth fell to its slowest pace in 20 months
in June while export growth eased, signs that tighter monetary
conditions and sluggishness in global demand were dragging on
The central bank has raised interest rates five times and
bank reserve requirements nine times since last October as the
inflation threat has grown.
It has also issued a flurry of measures aimed at rising
property prices to prevent a real estate bubble from forming.
Xia Bin, a central bank adviser, told the China Securities
Journal that Beijing needed to use a mix of policy tools to
battle inflation, including interest rates, the currency, open
market operations and changes in bank reserve requirements.
Many analysts expect the central bank to lean more on
interest rates to fight inflation in coming months, partly
because they see limited room for higher bank reserve ratios,
which for big banks stand at a record 21.5 percent.
Inflation pressures are also spreading, providing another
reason why the broader impact of interest rates may be a more
effective tool. Inflation less food was 3.0 percent in June, the
highest since records began in 2002.
"Monetary policy should make a gradual departure from the
path of quantitative tightening and move towards relying
primarily on adjusting interest rates," Liu Yihui, a researcher
with the Chinese Academy of Social Sciences -- a top government
think tank, told the official China Securities Journal.
A Reuters poll last week shortly after the latest rate rise
from the central bank showed a small majority of analysts
expected at least one more rate rise this year.
Chi Sun, China economist at Nomura in Hong Kong, predicted
four rate rises in 2012 as rising wages fuel inflation.
Governor Zhou was not specific about how the central bank
would tackle inflation in the months ahead.
"We will use more market-oriented tools and means to
maintain necessary controls on liquidity, while maintaining a
reasonable amount of social financing to avoid big fluctuations
in economic growth," he said.
Market-oriented tools typically include interest rates,
exchange rates and bank reserve requirements, Gao Shanwen, chief
economist at China Essence Securities in Beijing said.
(Additional reporting by Zhou Xin, Lu Jianxin and Carrie Ho;
Editing by Ken Wills and Neil Fullick)